Stock Market Investing: Watch the False Confidence

Stock Market Investing False ConfidenceWatching the stock market rise for the fourth straight day on Tuesday, I’m left wondering about the false confidence that appears to be on the surface. My view is that the current state of stock market investing should continue to be guarded with caution and selling into strength.

Greece and its lenders appear to have a deal in place; it’s true. But the Greek parliament still needs to approve it. The reality is that even if an austerity-for-funds deal is done, it will likely be decades before the country can dig itself out of the deep hole where debt is 180% of gross domestic product (GDP).

Trust me when I say that, while it may be showing some growth, the eurozone continues to be straddled by weak members in Italy, Ireland, and Portugal. Spain is finally beginning to grow its economy, but unemployment there is at around 26% and youth unemployment is hovering at around 45%.

Also Read: Stock Market Investing: Timing Really is Everything


Why There’s More Trouble Ahead Than Just the Eurozone

Let’s assume the eurozone is on its path to growth. We still have the potentially big bubble brewing in China, which I have discussed in recent commentary. There is simply too much margin interest in China amongst the neophyte investors. As a result, there could be a reckoning on the horizon. It’s worrisome that there are too many gamblers involved in the Chinese stock market. According to a show I recently watched on investing in China, investors love playing stocks since gambling is hard to come by there, except when in Macau.

Then there’s Japan. Even in Japan, the massive stimulus program has driven debt levels higher. Should the country’s growth stall and interest rates begin to rise, debt could be brought to dangerous levels that could backfire. Spending yourself out of debt is simply not a sustainable strategy.

And Then There’s the Domestic Outlook…

Take a look at the domestic situation where our national debt level is above $18.0 trillion. This debt is also amassing huge interest payments that will continue to grow, especially as the Federal Reserve raises interest rates. The U.S. will surely face crippling debt and interest in the foreseeable future.

Over in Puerto Rico, you have staggering debt levels that are curtailing the economy. The country cannot file for bankruptcy because it’s a territory of the U.S.

What I’m saying is that things are not as good as they may seem, which the recent records hit by the stock markets may suggest. There are serious issues out there that could derail the global stock market going forward. And this is why you need to adopt a defensive approach at this time and simply chase gains higher.

Lighten your positions after rallies. Use put options as a hedge or as a strategy to buy stocks cheaper through selling the puts. There’s nothing wrong with being cautious.